Financial Plan updates are paramount; a portfolio is not a plan and outperformance is not a goal.
This “Commandment” is rather important when clients seek financial advice; it differentiates holistic advice from sales. When an individual seeks advice on their financial future, there are three key points that should be addressed in the first two meetings and before any recommendations or documents to sign are presented;
- Your current financial circumstances – a detailed account of all aspects of your current financial position should be discussed and noted.
- Your desired outcome for the future – any key objectives you had must be incorporated into your plan, including any known future expenses, desirable income through retirement, travel, emigration or property purchases.
- All changes to the above points – if at any point your financial circumstances change, your adviser should be informed and build these changes in to your plan. If your aspirations for your financial future change, these should also be discussed and planned for accordingly.
As I mentioned in the brief introduction, having a living, breathing, adaptable financial plan is becoming of pivotal value to clients, especially with global migration and cross-border investment becoming so much a part of the norm for investors. The financial plan determines everything involved in your finances, from investment risk tolerance, asset allocation and affordability; to protection, taxation and income aspirations.
However, it is wise to understand where the value is truly generated; ensuring that everything revolves around you! An investment portfolio is not a financial plan, it is a tool to help you achieve your objectives. An insurance wrapper, trust solution or savings plan are the same; tools to assist you in achieving your goals.
When I mention the terms “goal” or “aspiration” this does not relate to investment performance expectations. Primarily they should be detailed as objectives to achieve both pre- and post-retirement, including expectations for expenditure on basic living needs versus luxury spending. The typical aspirations I see when meeting clients involve; paying for children’s university fees, buying a retirement home, spending time travelling, moving to another country and leaving wealth to their family.
The reason this is of such importance is to differentiate what you want to do against what you need to achieve. Too many people are fixated on annualized investment returns, expecting either significant outperformance of an index or high levels of income. Focusing on the investments rather than planning to achieve your goals can lead to a greater frequency of trading and too much deviation from your plan.
The value of an investment will be directly linked to the performance of the funds selected and may fall as well as rise. You may get back less than you invested.
This article is a general communication being provided for informational purpose only. It should not be relied upon as financial advice and it does not constitute a recommendation, an offer or solicitation. No responsibility can be accepted for any loss arising from action taken or refrained from based on this publication. All information presented herein is considered to be accurate at the time of production, but no warranty of accuracy is given and no liability in respect of any error or omission is accepted.